All change: Fast beats slow, not big beats small - How can ‘big banks’ respond as the landscape transforms?
21 March 2017
PwC research reveals that while many so-called ‘challenger’ banks do not see themselves as taking on the incumbents, their exploitation of new technology and regulation will nonetheless change the game. How should the big banks respond?
Should Britain’s biggest banks be worried? New PwC research into the outlook for so-called ‘challenger banks’ identifies a bright future for the competitive landscape in UK retail banking, as regulation and technology evolve, and these organisations confront the specific opportunities and challenges they face. What implications does this have for incumbents, including ‘the big six’ that currently dominate UK banking?
One key message from our research, presented at a British Bankers’ Association conference in London on 3 March, is: the challengers themselves largely reject this label – often because their goal is to succeed in a particular segment of the market, according to their USPs, rather than to win market share from the biggest banks across the full range of banking products, including current accounts.
Nevertheless, a marketplace where consumers source banking services from a range of providers rather than a single bank would be a transformation from the experience of recent years. In this increasingly modularised market incumbents will need to continue to rethink and evolve their propositions. Audience participants at the BBA conference, shared that view and identified six key areas of focus.
1. Boundaries will blur
As the banking industry shifts from a focus on product provision to end-to-end customer need, the future will be increasingly collaborative. With a mix of service providers including today’s biggest banks, mid-sized and new banking challengers, and new entrants from other sectors, boundaries in banking will become ever-more blurred. That represents a challenge to ensure banks comply with regulation to deliver stability and protect consumers, but must also find a way to foster innovation and new ideas.
2. Open banking is an innovation issue, not a compliance challenge
The move to open banking in the UK, with regulators requiring organisations to build structures that make it much simpler to share customer data, will transform the sector, enabling new business models and facilitating new entrants, including from non-banking industries such as technology. The incumbents are obligated to facilitate this shift, but those organisations that think purely in terms of the technical compliance challenge will miss the opportunities open banking is set to create.
3. Fast beats slow (not big beats small)
Size has traditionally mattered in banking, but in a modularised marketplace where multi-banked consumers are able to exploit new technologies to source the services they need from a variety of providers, and new providers operating with much lower fixed costs, scale will be less important. Instead, the most successful banks will be those able to move quickly to meet these emerging needs. That will require technical know-how, but the bigger challenge for many organisations will be cultural – shifting the organisation from a more conservative mindset to an approach driven by ambition and imagination.
4. Data can deliver
The enormous volumes of data held by big banks could be used to drive a powerful new focus on the customer, but this resource has yet to be fully exploited. Banks will need to work harder to unlock the insight hidden in customer data, including transactional data, in order to deliver a better offer in both traditional areas of banking and new services. Such data holds the key to everything from better credit risk analysis to anticipating customer needs across their finances – banks could help customers to save on their utility bills, for example, or to reduce unnecessary spending.
5. Banks must grasp their societal responsibilities
It was evident from the consumer survey that trust is as much of an issue for new entrants as it is for incumbent banks (in some ways more so, as relative unknown quantities). The changing landscape therefore provides further opportunities for banks to strengthen their relationships with consumers including the launch of new products and services for more vulnerable members of society. To take just a single example, some banks have begun experimenting with blockchain technologies as a means of distributing benefits payments.
6. Digitisation is the right response to disaggregation
In a more modular marketplace, successful organisations will learn to survey the landscape from the perspective of customers. In particular, consumers will demand more instantaneous gratification – their needs met straight away at any time of their choosing – and greater personalisation – with products and services tailored to their individual needs. Developing powerful digital interfaces capable of meeting these demands will be crucial – some incumbents believe such platforms could even lead to a ‘rebundling’ of banking services.
To find out more please read our report: Who are you calling a ‘challenger bank’?